Marino de Medici: Momentous times for Europe, Germany permitting

Marino de Medici

Marino de Medici

Euro, the European currency, is under attack. Even in Italy, a country that had accepted being part of the euro system with a large majority of support, there are rumblings in favor of calling a national referendum on jettisoning the common currency and returning to the beloved but perennially weak lira.

Attacking the euro has become part of the common cry against austerity, high unemployment, the
avarice of banks that do not dispense credit, and the imposition of sacrifices from the powers that be, particularly the German dominated European Union. Too many Italians are convinced that the country was better off with the lira and that the advent of the euro doubled prices (one euro, whose value was fixed at less than 2,000 lire, quickly became the equivalent of 1,000 lire). The question then is: would Italy be better off without the euro? The answer must start with acknowledging that the euro has become the scapegoat for too many problems that affect Europe, the common enemy of those who believe that the euro system has benefited some handsomely and condemned others to poverty. The target of these grievances is indeed one nation over all other: Germany.

While Italy went deeper into debt, in 2013 Germany accumulated a trade surplus of $276 billion, even larger than that of China. It is easy to point fingers by making an example of Greece that in 2010 went into virtual bankruptcy when its government debt skyrocketed. In large part, this situation came about after Greece, like Italy and other southern European countries, took advantage of low interest rates established by the European Union regime and bought the products, from cars to refrigerators, that Germany was exporting.

This splurging on consumer goods, and the lack of moderating internal policies, brought Greece to its knees. The German chancellor Angela Merkel responded by preaching austerity until the debt-plagued countries and France itself revolted against the straightjacket budget policies enforced by Germany and the northern countries. The Italian premier Matteo Renzi took the lead of the movement to disregard strict deficit requirements and to cut labor taxes to foster an economic recovery without which debts could not be reduced.

Now, there are changes afoot: the European Central Bank has been favoring pro-growth policies, incurring open hostility from its powerful German member. In short, the dissent is growing but countries such as France and Italy must be wary of pushing their action to a point where interest rates would grow.

The prospect of a European recovery, which is very much in the interest of the United States, impinges to a large extent on one man, the European bank President Mario Draghi. He has stated that the euro is “irreversible” and that his central bank “will do all that is possible within its mandate to preserve it”. But he added, a bit ominously, that the
European bank has no legislative powers to force member countries to stay in the euro system.

What he said next caught the attention of the world, as Draghi intimated that the European Central Bank might take “additional unconventional measures,” a strong hint that it would adopt an American-style “quantitative easing,” that is to say massive purchases of bonds to keep interest rates down and foster credit. Draghi’s strategy has raised high expectations but the experts are pointing out that it would be unrealistic to compare the European bank to the
Federal Reserve which finances itself mostly through the capital markets while the European bank does so within the banking system.

The big question, as always, is about Germany, the power within the 18-member monetary union, determined to defend its model based on austerity and balanced financial accounts. But the Germans concur with other members that what is needed is more integration in Europe. The German Finance Minister Schaeuble is even calling for a European finance minister and autonomous budget for the euro area. Joint governance in Europe seems to be the key to protecting the euro. It will not be easy to explain to Europeans that this will entail yielding more sovereignty, something that France is not keen to accept. Much more is at stake than saving the euro. The European Union has to find a new balance between Germany’s imposition of its financial values and the
need for pragmatic measures that must uplift the economically distressed members. In spite of the criticism leveled at the euro, the benefits of this monetary system still outweigh the flaws and inadequacies of the European institutions and the unbalance that has bedeviled their citizens. While it is true that the cart was put ahead of the horse when the monetary union preceded a political merger, this is a momentous time for Europe to move forward to an authentic union, both monetary and economic, a project yet to be fulfilled.

Marino de Medici is a Winchester resident and formerly the dean of foreign correspondents in the United States.

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